Centralized Structure Transforms Home Depot

¶ … Centralized Structure Transforms Home Depot

The centralization of the most critical shared support functions of Home Depot including customer service, information systems, supply chain management, pricing and administration led to the company attaining higher levels of collaboration and cost savings compared to competitors (Pearce II, Doh, 2005). Home Depot relies on a centralized structure for managing tis most intensively shared resources. As competitors including Lowe's and comparable mass merchandiser Walmart have discovered, the ability to centralize pricing and product merchandising management, analyze the results of strategies daily, and react quickly to the market have significant competitive advantages. This is one of the primary factors in Walmart's success for example. Home Depot also centralizes these functions for economies of scale and to achieve the experience effect, or the ability to reduce the cost to complete given complex tasks.

Home Depot balances this highly centralized structure for shared resources, strategies with a decentralized structure so individual merchandising, store layout, and structure can be more closely aligned to individual market needs (Strategic Direction, 2006). Home Depot managers have the flexibility and authority to specifically define their own merchandising, marketing and promotion strategies (Strategic Direction, 2006). This has been highly effective as an organizational structure because it has freed up the creativity and speed of response to market conditions that would otherwise have not been possible. The market-facing areas of Home Depot are high decentralized to ensure market responsiveness.

Case Analysis: A New Caterpillar Emerges

Caterpillar was experiencing an eroding market share, loss of the ability to respond to market conditions through its manufacturing organization, and an organizational structure that was getting in the way of new product development and introductions. In short, the Caterpillar organizational structure was leading the company into a less competitive position from both an operating costs and time-to-market standpoint. This immediately affected the financial performance of the company, making it less profitable. The structure of organizations often follows a highly functional path, where manufacturing is centralized and each supporting functional area is integrated at the process level to production centers. For Caterpillar, their market had grown too diverse for a centralized manufacturing-based strategy to deal with. What Caterpillar decided to do was completely redefine its organizational structure with the concepts of lean manufacturing, time-to-market and demand-driven supply chains as the cornerstone of the new organization (Kee, 2003).